What, Who, How and Where: Retailing Industry in Saudi Arabia

By Randheer, Kokku; Al-Aali, Abdulrahman | Journal of Competitiveness Studies, Fall 2015 | Go to article overview

What, Who, How and Where: Retailing Industry in Saudi Arabia


Randheer, Kokku, Al-Aali, Abdulrahman, Journal of Competitiveness Studies


"You should always be strong to be big in the future and not big to become strong." Frederic Levy-Perrault, Carrefour CEO for Saudi Arabia Talk at Marketing Club (May, 2014) College of Business Administration, King Saud University

INTRODUCTION

Retailing in Saudi Arabia is a very old activity that dates back approximately 2000 years. Mecca was a trade center, and drew traders from all across the Middle East, who visited and engaged in commercial activity, buying and selling goods. The establishment of modern supermarkets in Saudi Arabia is of very recent origin (Yavas and Tuncalp, 1983). It dates back to 1979, with the opening of the Souks Company, Ltd. in Dhahran, which operated under British management. This case will describe the present status of Saudi Arabia's retailing industry, describe current key players and how they operate, and finally, the case will take a look at where Saudi Arabia's retail industry is headed.

As is true in other developing and emerging nations, Saudi Arabia's retailing industry today can be categorized into organized and unorganized sectors. In recent years, the industry has seen the steady growth of large, organized retailers and, in the near future, Saudi Arabia's retail space will be dominated by these large retail companies (see Figure 1 on Saudi Arabia's present retailing landscape, www.sachaorloffgroup.com, Jan 2012).

Today's total retail market includes a grocery segment with 35 percent of the market, and a non-grocery segment with 65 percent of the market, with the overall market achieving a six percent growth rate in 2013, with approximately 265 billion Saudi Riyals, compared to 250 billion in 2012 (arabnews.com, May 2014). Originally projected to reach 11 percent (A.T Kearney, 2013), this actual growth rate is still impressive. Retailing accounts for about 17 percent of the country's gross domestic product (GDP). The organized sector accounts for 44 percent of the retail market, and is expected to account for 65 percent of the retailing market by 2020 (www.arabnews.com, May 2014). The retail industry in Saudi Arabia includes large, medium and small grocery stores. It is expected to grow significantly in the next ten years (www.arabnews.com, accessed Dec 10, 2013) because the middle class is growing at the fast rate of 13 percent each year (arabnews.com, Mar 2013).

In last two decades, organized and multi-product/multi-outlet companies have expanded aggressively, and targeted consumer segments have responded well. Multi-national retail companies and brands, such as Carrefour, Euromarche, Danube, Debanhams, IKEA, LuLu, Extra, H&M, Bershka, New Look, Galeries Lafayette, Burberry, Children's Place, F&F fashion, Zara, Furla and Liu Jo have been drawn to Saudi Arabia's growing retail market (www.arabnews.com, Dec 2011) and many more international brands are now in the pipeline to enter its market.

Saudi Arabia began permitting foreign direct investment (FDI) in the retailing sector in the early 2000's. The importance of the retail sector's contribution to the national economy is undisputed. Economists agree that giving the retail sector a thrust will not only boost the national economy; it also has the potential to help rejuvenate specific targeted sectors, including the semi-urban and rural sectors. However, the outflow of money from the economy due to the large number of foreign retail operators has also drawn criticism (www.arabnews.com, Accessed Jul 3, 2013).

Overall, however, it is clear that the retail sector is leading the way toward a more diversified economy and helping Saudi Arabia to reduce its dependency on oil revenues, which is one of the Kingdom's key goals.

Saudi Arabia's competitive retail landscape is largely dominated by family businesses that have operations across a number of other sectors as well. The retail league includes the largest shopping center developers and landlords in the country. …

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